Europe's AI ambitions rest on somebody else's supply chain

Europe boasts one of the world's largest markets for AI datacenter infrastructure, yet its own domestic firms only hold a small slice of the pie. Overseas suppliers control the chips, servers, and cloud infrastructure crucial to this sector. The Global Electronics Association's report, "From Chips to Systems: Building an End-to-End EU Strategy for Data Centre, Cloud Infrastructure and AI," reveals that EU-owned companies command merely six percent of the datacenter semiconductor market, seven percent of server manufacturing and assembly, and eight percent of cloud infrastructure.

The association's Cloud and AI Development Act (CADA) seeks to at least triple Europe's datacenter capacity within five to seven years, aiming to capitalize on the unprecedented demand for servers, electronic systems, and semiconductor components.

However, Europe has lagged behind in the electronics supply chain. Taiwan leads contract chip manufacturing and produces most of the world's leading-edge processors, many of which are designed by American entities. South Korean and US firms dominate the memory market, with major server manufacturers being predominantly American. Chinese tech giant Lenovo is an outlier in this regard. US companies also hold sway over networking and storage, leaving Europe with limited local suppliers.

The report urges the EU to adopt an end-to-end strategy for the datacenter supply chain, leveraging European demand to spur private investment and entice global tech and manufacturing firms to expand production within the bloc. The surge in server demand, fueled by AI processing needs, has become the primary growth engine for the entire electronics industry since 2024, surpassing other segments.

Forecasts predict servers will become the largest electronics segment by 2030, ahead of smartphones or automotive electronics. Datacenter, cloud, and AI infrastructure are identified as the most strategically important market for EU technological sovereignty, as server farms form the backbone of essential services and cloud services are integral to modern goods' design, manufacture, and operation.

The association argues that supporting individual supply chain components in isolation won't yield a competitive European industry. It highlights the Chips Act 2.0 and CADA as steps in the right direction, but emphasizes the need for additional industrial policy measures. The report notes that Europe cannot realistically construct this supply chain using solely EU-headquartered companies.

Policymakers should leverage the EU market's appeal and growth potential to attract global leaders to establish manufacturing operations in Europe, potentially through partnerships and sharing manufacturing expertise across the region's electronics industry. This approach mirrors the Trump administration's push to revitalize American manufacturing but relies more on incentives than tariffs or threats to exclude foreign products unless their manufacturers set up US production.

Nevertheless, the GEA contends that European entities should progressively anchor a larger share of the end-to-end value chain within the continent. The success of this endeavor hinges on the collective will of EU members and the feasibility of breaking the deadlock of Europe's reliance on overseas technology.